Multiple reports that the United States administration is considering a ban on methanol cigarettes caused a hit to the shares in two tobacco giants.
There was a drop of 10.6 per cent in the shares of the British American Tobacco which was its lowest in almost five years, while there was a 2.2 per cent drop in the shares of Imperial Brands after it recovered from a sharp fall.
The US Food and Drugs Administration would impose the ban, said a report in the Wall Street Journal recently.
About one forth of BAT’s earnings and a tenth of Imperial Brands’ profits are accounted for by revenues generated from sale of menthol cigarettes, said analysts.
The report hit the market because the news paper report said that the ban was being considered by the US authorities after just days of it issuing hits to the flavoured e-cigarettes.
Last year, BAT had bought out rival RJ Reynolds for $49bn and is also the owner of the most popular menthol brands, Newport.
About 25 per cent of BAT’s annual underlying earnings and about 11 per cent of Imperial Brands’s profits were accounted for by sales of menthol cigarettes in the US, according to estimates by analysts at Barclays.
However, it could be another two years for the imposition of the methanol ban – one year should be taken for finalizing the rules and another year for the enforce the ban in the marketplace.
Menthol cigarettes posed a greater health risk than regular cigarettes because they harder to quit, the Food and Drugs Administration had concluded in 2013.
“Along with cigarette volumes shrinking, regulation is the other inevitable fact of the tobacco industry,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“An ever more hostile regulatory environment might explain why BAT has decided to spend big on next generation products like e-vapour and heated tobacco.
“These products are believed to cause less harm to users, but even here the regulator is creating waves – potentially banning flavoured capsules popular with younger customers.”
The assumptions that menthol posed a greater risk to health of smokers and non-smokers than cigarettes without menthol or it made smoking harder to give up or encouraged people to smoke have been rubbished by BAT.
“In the event that the FDA does make an announcement this week indicating that it wishes to regulate menthol cigarettes, any such proposal will have to go through the multi-year rule-making process, including public comment, a potential review by the Tobacco Products Scientific Advisory Committee (TPSAC), and will be subject to judicial review,” said Simon Cleverly, corporate affairs head at BAT.
“In any event, we look forward to continuing to participate in a thorough science-based review to address the use of flavours in tobacco products.”
(Adapted form BBC.com)